Thursday, August 25, 2011

UN - Key Perspectives (The Commission of Experts)

The Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System

"The Issues Paper highlighted the large array of issues which the Commission will have to
face in its deliberations. This background essay seeks to lay out some key principles that
may help inform those deliberations..."

1. Markets are at the center of any successful modern economy.But markets, by themselves, often fail to produce robust, stable and sustainable growth which is equitably shared, or even efficient resource allocations. Markets are not selfcorrecting. In every successful economy and society, there is a need for collective action; the state (at various levels) performs critical functions. What those functions should be, and how they should best be conducted, may differ from country to country and from time to time. Yet, the failure to find the appropriate balance can contribute to economic failure and social distress.The failure of government to perform its responsibilities, or to perform them appropriately, has been a major factor in creation and propagation of the current crisis. Ironically, the attempt to denigrate the role of government has necessitated the government undertaking unprecedented actions...

2. Since the Great Depression, most governments have undertaken responsibility for macro-stability, and all governments take responsibility for regulating the monetary system. But far more than that is required, from the provision of public goods to the regulation of externalities...

3. A well-functioning economy requires well-functioning financial markets, to mobilize savings, allocate capital, and help manage risk. At the heart of financial markets are information imperfections—and it is well known that under information imperfections and asymmetries markets, by themselves, often fail. They have repeatedly failed to perform their essential functions.

4. Financial markets are a means to an end, not an end in themselves. The failure of financial markets causes large externalities—adverse effects on the real economy...

5. Because of these potential adverse effects, governments have repeatedly bail-out
financial markets when they have failed, at great cost to taxpayers..."